Highlands Pacific uses some laterite thinking
Small-cap Spotlight
www.wise-owl.com
Company: Highlands Pacific Limited (HIG)
Share price: 15c
Market capitalisation: $88 million
Recommendation: Speculative buy
LARGE-SCALE resource developments have been
few and far between during the past 12 months.
Projects requiring big up-front capital costs
have typically been relegated to the back burner
as cash preservation has become order of the day.
Aspiring nickel laterite (a low grade form of nickel
ore) producers have been hit particularly hard.
Wise-owl.com analyst Tim Morris says the
recent failure of BHP's Ravensthorpe mine is
testament to the woes that have plagued nickel
laterite projects. "A 70 per cent fall in the nickel
price from its highs has squeezed many a
project's economics; however, BHP's $4.6 billion
decision to mothball Ravensthorpe so soon after
commissioning was a real confidence killer."
But like a phoenix rising from the ashes,
Highlands Pacific could be emerging as a rare
good-news story. The company has an 8.56 per
cent free carried interest in the Ramu nickel
laterite mine in Papua New Guinea. Ramu is due to
start commissioning at the end of the year and has
an annual production target of 31,150 tonnes of
nickel and 3300 tonnes of cobalt. Highlands
swerved the project's $1.7bn financing hurdle by
forging a joint venture in 2005 with China
Metallurgical Group, which agreed to shoulder
development costs in return for a majority stake.
Morris says ongoing advances at Ramu towards
production could re-rate Highland's share price.
"With projected operating costs below $US3
[$3.75] a pound after cobalt credits, Ramu has the
potential to generate handsome cashflows, even
at current nickel prices of $US7.20/lb."
Income from Ramu will be welcomed as
Highlands advances its other world-class mining
project, Frieda River.
Also located in PNG, Frieda River is still in the
pre-feasibility stages, but with an overall resource
estimated at 7.5 million tonnes of copper and
14.3 million ounces of gold, Morris says the
project "is emerging as one of the world's largest
undeveloped copper-gold deposits".
Highlands Pacific has a 16.7 per cent free
carried interest through to the completion of a
feasibility study in 2012.
Production isn't expected before 2016, but
project partner Xstrata recently flagged $US30
million for further development.
